Tuesday, November 16, 2010

State Law and the Switching Problem

By Mike Dorf

My latest FindLaw column attempts to unpack what's at stake in AT&T Mobility LLC v. Concepcion, in which the Supreme Court heard oral argument last week. Perhaps this is a fool's errand. In her Slate piece on the oral argument, Dahlia Lithwick essentially described the case as impossible to understand, not least because it is inherently boring. But I say, one web pundit's boredom is another's excitement. Or something like that.

Anyway, I explain in the column that a central issue in the case is whether California has consistently applied its doctrine of contract unconscionability. That kind of question, I note, has arisen in other contexts. I focus there on two comparisons.

(1) In determining whether there are independent and adequate state law grounds to support a state court judgment, federal courts inquire into whether the state has consistently applied the rule it is applying in the particular case. For example, suppose a state court says the state has a rule that appeals are only accepted if the losing party files within 30 days of the trial court judgment but that the state courts routinely excuse lateness in all categories of cases except cases involving federal civil rights. That would be an inadequate state law ground.

(2) I also discuss the concurrence in Bush v. Gore, in which CJ Rehnquist argues that state courts must stick close to the text of state statutes when construing those statutes in their regulation of Presidential elections.

In all three instances, the putative federal requirement limits the ability of state courts to change the law from what it was or from what it appeared to be at some earlier time--and in each instance that's because a change is thought to connote a kind of insincerity: The state doesn't really think that unconscionability limits the impact on third parties of contractual class-action waivers; the state doesn't really enforce the procedural rule that led to the default of the habeas petitioner's claim; the state legislature didn't really say what the state court now says it said. Rapid switching from one legal rule to another is a sign that the real rule is that one sub-rule applies to one class of cases and a different sub-rule applies to a different class of cases.

Or so the argument goes, anyway. In an article a decade ago, Larry Alexander described the phenomenon of "switching," under which a jurisdiction continually enacts, repeals, and re-enacts some rule so that it will apply to one class of cases but not another. I think he makes a persuasive case that, at least under certain circumstances, such switching means that the real rule is the meta-rule that explains when the state enacts, repeals, or re-enacts the rule.

Under normal circumstances, it is not possible for a legislature to enact, repeal, and re-enact a law with sufficiently precise timing to generate the desired outcomes in each case. That's not true for courts, which formulate and apply their rules retrospectively, and that probably explains why we see the anti-switching norm in multiple contexts involving judge-made law but we have just about no cases of legislative rapid switching.

For legislatures, we normally assume that a change in the law reflects a change in policy rather than a disingenuous effort to disguise unequal treatment as a policy change. But this raises the question of the relevant domain for equality questions. Suppose A and B are identically situated. Normally we would say it is unfair or unequal to subject A and B to different rules at the same time but that there is nothing unfair or unequal about subjecting A and B to different rules at different times.

This assumption that different treatment at different times does not raise equality objections is hardly a self-evident proposition. Let's say I permit my 9-year-old daughter to cross the street without holding an adult's hand. My 6-year-old daughter might say that's unfair (which is what she says about virtually everything that limits her freedom, but I digress). It is a sufficient answer to say that there's no unfairness to treat the girls differently now; when the 6-year-old reaches the age of 9, she too will be permitted to cross the street without holding an adult's hand.

Now we could say that the same rule is being applied to both girls at both times: No child under 9 gets to cross the street without holding an adult's hand. And that strikes me as an accurate characterization. But to formulate the rule that way requires that we go up a level of generality from the way my 6-year-old perceives the rule now, which is "my sister gets to cross by herself and I don't." That's also an accurate characterization. Analogously, if the law changes from X to Y at time t, we could say that the meta-law hasn't changed. It was always whatever passes the legislature and is signed by the Governor is law.

My point is certainly not that changes in the law are necessarily prima facie denials of equality. Rather, the claim is that what does and does not count as a fair baseline for measuring equality is not obvious. We accept that it's okay for NY to apply different tax rates to X and Y if X earns $100,000 in 2010 while Y earns $100,000 in 2011 because NY can change its tax rates, even though it's not okay for NY to tax X and Y at different rates if they both earn $100,000 in 2010, even though they live in different towns. (I'm assuming there's no town tax, just a state decision to treat two towns differently.) We treat differences based on time differently from differences based on space. More broadly, this is a version of the very old point (for which Peter Westen's classic article, The Empty Idea of Equality, is usually cited), that most of the work in the requirement that similarly situated people be treated similarly is done by figuring out what counts as similar.

7 comments:

I completely agree this is a really interesting case. And not just for arbitration and ADR folks, but perhaps even more so for federal courts people.

I have an article that discusses this case and, like your column, draws the parallels to the adequate and independent state grounds doctrine and the Bush v. Gore concurrence (along with cases like Martin v. Hunter's Lessee). You can find it on SSRN or the NYU Law Review's website.

As far as what the Court should do in this case, it seems that the easiest course would be to dismiss cert as improvidently granted. (I joined an amicus brief that advocated that as an alternative to affirmance.) In addition to the extreme difficulty of coming up with a rule to decide this case, there is the fact that policing judicial decisions applying unconscionability is probably less important than when the court granted cert (because of the intervening decision in Rent-a-Center v. Jackson, which will transfer many of these unconscionability decisions to arbitrators and away from courts).

It seems to me that you're giving too much credence to AT&T's argument about California's alleged inconsistency and thereby making the case more complicated than it needs to be.

AT&T argues that California has not consistently applied its doctrine of unconscionability because only in the arbitration context does the doctrine focus on fairness to third parties. Even assuming that AT&T's characterization of California law is correct, there is no evidence that California's focus on third parties is limited to class-action bans in contracts containing arbitration clauses as opposed to class action bans in general. On the contrary, under California law class-action bans in consumer contracts in which there is no arbitration clause are also unconscionable.

Thus, AT&T's argument about California's alleged inconsistency is inseparable from its argument that any doctrine specific to dispute resolution clauses is preempted by the FAA. If a focus on dispute resolution clauses is permissible, then there is no inconsistency and no "switching": California law consistently prohibits class-action bans in consumer contracts, whether or not there is an arbitration clause.

To be clear, I understand that AT&T's argument is that this particular arbitration clause is favorable to individual plaintiffs, and therefore the class-action waiver can only be unconscionable if third parties are taken into account -- which arguably distinguishes it from class-action waivers in the litigation context, which presumably can be justified based on fairness to the individual plaintiff alone.

But this argument -- to the extent it is meant to demonstrate inconsistency in California law -- doesn't even pass the laugh test. The fact is that California law bans class-action waivers in most consumer contracts, whether or not there is an arbitration clause. AT&T is entitled to argue that its arbitration clause is particularly generous to individual consumers and therefore its class-action waiver shouldn't be considered unconscionable. But it borders on absurd to argue that California is being inconsistent by rejecting this argument and treating AT&T's class-action waiver the same way it treats other class-action waivers in consumer contracts.

AF: I think you're onto something here, but what you're onto is that AT&T is trying to shoehorn a decent argument into the statutory language that does not especially fit well. Class arbitration is possible but it is not common and so it's not completely unreasonable for AT&T to analogize a rule forbidding class action waivers to a rule forbidding jury trial waivers. I think AT&T should lose on this point, but I do think the statute's language is unfortunate, insofar as it supports the inference that a state could ban "all contracts" containing jury trial waivers and the like.

I agree that the analogy to jury-trial waivers is reasonable. But that's the first of the two arguments that you mention in your column. I'm referring to AT&T's second argument, about alleged inconsistency in California law. In my view, that is an unusually bad argument.

AF: I just don't know enough about CA law to know whether the inconsistency point stands up. My main point was that even if there is some inconsistency, that's not enough to show an effort to defeat arbitration, given a state's freedom to change its law.

Understood. I don't know CA law either; I'm just going by the briefs and the opinion below. From these materials it is clear that (1) CA law treats class-action waivers the same whether or not there is an arbitration clause; (2) AT&T's argument about inconsistency is based on counsel's characterization of abstract principles of CA unconsionability law, culled from cases having nothing to do with class-action waivers, with which CA's class-action waiver doctrine is allegedly inconsistent (at least as applied to the present case); and (3) the opinion below did not address these abstract principles but simply applied CA's law regarding class-action waivers in a straightforward manner.

Missing from AT&T's argument is any assertion that CA law has actually changed.